4/2/2025

Palliser Capital Calls Out Rio Tinto Board Ahead of a Shareholder Vote on Its Dual Listing

The Australian (04/02/25) Thompson, Brad

Palliser Capital has accused the Rio Tinto (RIO) board of running scared on the eve of a vote on the future of the miner’s dual listed structure. Palliser chief investment officer James Smith said the fund wanted Rio to conduct a transparent review of unification and make the findings public so that shareholders could make an informed decision. “We are long-term holders of Rio shares and are focused on seeing value realized through best-in-class capital allocation,” he said. “In our conversations with Rio’s top shareholders, it is clear that they are interested in the value-enhancing potential of unification, but more important, all agree that more disclosure is better than less.” Palliser sees merit in Rio ditching its London listing because its shares trade at a higher premium on the ASX. Big investors and advisory firms remain at odds on the issue ahead of a London vote on Thursday. Mr Smith questioned why Rio’s board, including chairman Dominic Barton, had been so strident in opposing a review. “The vigor with which the company has resisted this request is telling that they fear the conclusions of an independent inquiry will run counter to their own preferences,” he said. “However, the board has an obligation to set its own agenda aside and do right by its shareholder base … the board would be best served by displaying best-in-class governance by conducting the full, fair, and transparent review that shareholders deserve.” Barton took aim at Institutional Shareholder Services after it backed the Palliser motion. In a letter to investors, he accused ISS of dismissing the material dual-listing unification costs and significantly overstating the benefits. He said ISS accepted incremental wastage of $US15bn of franking credits over the next decade as a price for unification, and told investors he had “significant concern” with some the advisory firm’s conclusions. The Rio board has been unanimous in recommending shareholders vote against the proposal and has described Palliser’s assertions of an alleged $US50bn of value loss due to the dual listing structure as “unfounded and misleading." Glass Lewis also supported the Palliser motion. “Rio’s response adds nothing new to the discussion on unification or to what has already been presented in the AGM notice,” Mr Smith said. Goldmans Sachs has warned ditching the dual-listed structure may cost the miner between $US7 and $US15bn and cruel its ability to continue paying fully-franked dividends to Australian shareholders. Rio has estimated the tax bill alone would be “mid-single digit” billions. Mr Smith worked at Elliott Management when it led a successful campaign for the unification of BHP’s listings in the UK and Australia.

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4/2/2025

Chemical Manufacturer Makes Peace with an Activist Hedge Fund to Avoid Proxy Fight

Charleston Post and Courier (SC) (04/02/25) McDermott, John

A North Charleston global chemical manufacturer will avoid fireworks at its next shareholder meeting under a compromise with an investor that's been critical of the company's management. The deal, struck last weekend and described as a "cooperation agreement," gives Miami-based Vision One Fund LP one seat on the board of Ingevity Corp. (NGVT). The south Florida activist shareholder previously nominated four representatives as directors as it mounted a public proxy battle. It later cut its list to two names. Vision One's final nominee is F. David Segal, a former vice president at International Paper Co. Under the new agreement, he'll be appointed to the Ingevity board and audit committee shortly after the April 30 annual meeting of shareholders for a minimum one-year term. Vision One also said it has agreed to vote in favor of Ingevity's original slate of nine directors who are up for re-election. The hedge fund owns about less than 2% of the chemical maker's shares. It went public earlier this year with its concerns about the company's lackluster financial performance, slumping stock price, and a series of money-draining business deals. The firm also has pushed for numerous changes, including the replacement of longtime directors who have "presided over nine years of bad acquisitions" and an "erratic corporate strategy." Vision One said its nominees would "drive change" and challenge the rest of the board. The investor also has urged Ingevity to focus solely on its stable materials business and to offload its lackluster chemicals division rather than pursue a "piecemeal" plan to sell part of it, including a refinery in North Charleston. Ingevity said that it previously rejected the fund's board nominees, including Segal, after interviewing them, partly because of a lack of relevant industry experience. Vision One CEO Courtney R. Mather did not immediately respond to an April 1 request for comment about the cooperation agreement, which was filed Monday with the SEC. Ingevity was spun off as a publicly traded business in 2015, and it employs about 1,600 workers in 31 countries. Its shares are listed on the New York Stock Exchange and were trading Tuesday around $38, off nearly one-third from their 52-week high. Ingevity's annual meeting at the end of the month will be held virtually.

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4/2/2025

Greencore Agrees £1.2 Billion Deal for UK Ready Meal Rival Bakkavor

Financial Times (04/02/25) Kelly, Maxine

Greencore (GNCGF) has struck a deal to acquire rival UK convenience food group Bakkavor (BAKK) for £1.2 billion after being rebuffed with an earlier takeover offer. Pre-packed sandwich maker Greencore said on Wednesday that the acquisition would create an entity with a combined revenue of about £4 billion, as a wave of takeovers continues to shrink the number of companies listed on the London Stock Exchange. Greencore’s offer of 200p per share for Bakkavor — one of the UK’s largest makers of fresh food — represents a premium of 32.5% to Bakkavor’s closing share price on March 13. Bakkavor had last month rejected a 189p-per-share offer from Greencore, saying it “significantly undervalued” the FTSE 250 company. Greencore last year faced pressure from Hong Kong-based activist investor Oasis activist Management, its largest shareholder, to speed up its turnaround plan and improve shareholder returns. Its share price has risen more than 40% in the past 12 months. Greencore said on Wednesday that both companies’ boards had identified potential “substantial synergies” from the deal, including in their manufacturing, distribution, purchasing, and administrative functions. It also highlighted potential improvements to supply chains and greater “development opportunities” for employees. In November, Bakkavor was affected by staff strikes over pay that led to a supermarket shortage of taramasalata. The group’s shares have risen more than 60% in the past 12 months. If the deal goes ahead, Greencore shareholders would own approximately 56% of the combined group with Bakkavor shareholders owning 44%. The companies said the cash and shares offer, on which they had reached “agreement in principle,” would proceed subject to shareholder and regulatory approval. Greencore said Bakkavor had indicated its board would be “minded unanimously to recommend” the offer to its shareholders.

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4/1/2025

Blocking 7-Eleven Deal on Security Grounds Would Hurt Japan's Image, Head of State-backed Fund Says

Reuters (04/01/25) Toyoda, Yukiko; Uranaka, Miho; Dolan, David

Japan risks reputational damage if it were to block a $47 billion foreign bid for retailer Seven & i Holdings (3382) on economic security grounds, the head of a government-backed fund said. Japan Investment Corporation (JIC) head Keisuke Yokoo also told Reuters in an interview the fund wants to help drive consolidation among chip-materials companies and is focused on improving performance at JSR, which it took private last year in a $6 billion buyout. JIC is not involved in the Seven & i deal, nevertheless, Yokoo's comments show that Japan's business establishment is not as uniformly protectionist as it is sometimes portrayed. His statements also underscore the broader stakes involved for the world's fourth-largest economy after Canada's Alimentation Couche-Tard (ATD) unveiled its bid to acquire the 7-Eleven owner in August. While protectionism is on the rise in the United States, where President Donald Trump has kicked off a trade war with a series of tariffs, Japan has in recent years stepped up efforts to entice more foreign investment, including by overhauling corporate governance. Circle K owner Couche-Tard has so far faced a frosty reception from Seven & i. Some politicians have cited economic security concerns over the potential acquisition, raising the possibility that Tokyo could take a protectionist stance to keep the beloved convenience store in domestic hands. "It wouldn't be good for Japan's image," Yokoo told Reuters in an interview on Friday, when asked about the potential impact if the government were to intervene and block the bid. "It's hard to see how the retail business is connected to economic security," he said. In September, Seven & i was classified as "core" to national security. While the mainstay convenience-store business wouldn't require a national security review in the event of a foreign takeover, Seven & i has wide-ranging operations, including financial services. JIC was set up in 2018 to invest in companies and boost Japan's competitiveness. It is overseen by the powerful trade ministry and on its website touts the need for "economic metabolism," a term used by policymakers to denote the need for stronger companies to replace weaker ones, often by acquisitions. One area in need of a shake-up is Japan's chemicals industry, Yokoo said. The sector includes firms that supply chip-related companies.

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4/1/2025

Activists Step Up Demands on Companies Globally in Q1, Focus on U.S. Corporations

Reuters (04/01/25) Herbst-Bayliss, Svea

Corporate agitators increased pressure on companies globally to perform better by engaging more of them worldwide during the first quarter, with most demands for change directed at U.S. corporations, according to new data from Barclays. Companies including oil major BP (BP) and ride-share company Lyft (LYFT) were pushed to make changes by activist investors such as Elliott Investment Management, Mantle Ridge and Starboard Value in the first quarter when the number of global campaigns increased by 17% to 70. U.S. campaigns jumped by 46% to 41, the data showed. "We are in a phase where activists continue to take advantage of all the uncertainties," said Jim Rossman, global head of shareholder advisory at Barclays. "In early 2025 we have seen more fights, more settlements and more board seats won by the activists than we did this time a year ago." This year's new campaigns come after a record number of activist shareholders engaged companies globally in 2024, and as President Donald Trump's tariffs and mass job cuts at U.S. government agencies, coupled with fears of recession, are creating market volatility. Investors continue to push management to run their businesses better, with roughly one quarter of all campaign demands centered on strategy and operations, about the same as last year. Demands for M&A moves like divesting business units or selling a company are still taking a back seat with only about a quarter of all campaigns including them. M&A demands are down by about half from when global deal volume hit a record high in 2021. But activists are also seeing campaigns pay off, Rossman said, noting the number of board seats won, often a measure of success, jumped during the first quarter. Fifty-one seats were obtained both in settlements and fights, marking a nearly 34% increase from last year. Emboldened by others' success and eager to make a return in uncertain times, activism is also becoming a popular tool for newcomers, both newly established funds and funds that have never mounted a campaign before. Eleven so-called first-timers mounted campaigns during the quarter, the data show. There was no comparative data for the first quarter of 2024. For all of 2024 Barclays data counted 47 newcomers. In January, newly launched Garden Investments, run by Ed Garden who previously co-founded Trian Fund Management, pushed Middleby (MIDD), which designs and makes equipment for foodservice and residential kitchens, to focus on its core business. In February, Garden was added to the company's board. Looking ahead to the rest of 2025, Barclays bankers believe more companies will face shareholder demands and expect most of the activity to remain focused on U.S. companies. Two prominent campaigns have been resolved through a vote, with Mantle Ridge ousting Air Products and Chemicals' (APD) CEO and Matthews International (MATW) defeating Barington Capital Group even through all three proxy advisory firms supported the hedge fund's candidates. Barclays data counted 13 proxy fights in the first quarter, compared with 10 a year ago. Activity has also picked up in Japan, marking a 45% increase from a year ago and a total of 16 campaigns, the data found. But Europe has not seen much action with only 9 activist campaigns, down 18% from a year ago.

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4/1/2025

Goldman Sachs Predicts High Costs and Dividend Danger in a Rio Tinto Single Listing

The Australian (04/01/25) Thompson, Brad

Goldman Sachs believes Rio Tinto (RTNTF) ditching its dual-listed structure may cost the miner billions of dollars more than previously estimated and reduce its ability to pay fully franked dividends to Australian shareholders. The investment bank said the total cost of collapsing the dual-listed structure could be in a range of $US7bn-$US15bn ($11bn-$24bn) with likely negative effects on the balance sheet, dividends and growth. The warning came in the countdown to a vote on the issue by London shareholders. Rio has estimated the tax cost alone would be “mid-single digit” billions of dollars and its Dominic Barton-led board has been unanimous in recommending shareholders vote against the proposal. Hedge fund Palliser Capital wants Rio to ditch its main London listing because its shares trade at a higher premium on the ASX. London shareholders will on Thursday vote on a motion to force Rio to conduct a strategic review of its structure, with big investors and shareholder advisory firms split on the issue. Australian shareholders will have their say on May 1. The proposal requires a 75% majority of PLC (London) and Ltd (Australian) shareholders to pass, with the result to hinge on the London vote given 77% of shareholders own the PLC stock. Barclays analysts said Rio may need to carry out the independent review even if the Palliser motion fails to gain anything like a 75% majority. “Our discussions with and recent statements from active managers on both sides of the DLC suggest limited appetite to vote in favor,” Barclays analysts said. “If more than 20% of shareholders vote in favor of the resolution, UK corporate governance standards require the board to consult shareholders to understand the reasons behind the result and update on views received and actions taken within six months.” The Goldman Sachs team said assuming no rollover relief or special concessions, collapsing the dual listing could cost shareholders $US5bn-$US7bn in capital gains tax. Goldman Sachs estimated the cost of foregoing the ability to continue to pay fully franked dividends to Australian shareholders at $US3.4bn. This was based on the geographic split of Rio’s future earnings not generating sufficient franking credits to underpin fully franked dividends. The analysis concluded the various costs could push net debt beyond $US20bn and may lead to “delay in key growth projects, impacting the ability for Rio to maintain its 60% dividend payout ratio, and limit its ability to pursue inorganic growth.” In contrast, Barclays said there would be some benefits to unifying the dual listing structure, including increased access to franking credits for Australian holders, eliminating Ltd cash transfers to PLC to fund dividend payments, simplification of group structure, and a more fit-for-purpose structure for scrip acquisitions. Under the Rio structure in place since 1995, all profits and assets are shared between the London and Australian listed companies and shareholders treated equally. However, the ASX-listed shares have traded at a premium, attributed to tax breaks on dividends. Palliser, which says it controls more than $US300m in Ltd and PLC shares, was formed by James Smith and others who worked at Elliott Management when it was instrumental in the unification of BHP’s listings in Britain and ­Australia. “All we are asking is for the (Rio) board to simply conduct a full, fair, and transparent review on the merits of DLC unification, which we believe to be the lowest risk, highest return form of capital allocation that the company has available today,” Palliser has said of its motion. Shareholder advisory firms Institutional Shareholder Services and Glass Lewis are supporting the motion.

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4/1/2025

Investment Bankers Watch on in NZME Fight as Battle Escalates

The Australian (04/01/25) Carter, Bridget

Investment bankers could be on standby at the end of the week when shareholders in the Australia and New Zealand-listed NZME (NZM) will be released from a trading lock-up connected with a Takeovers Panel investigation. The panel has been looking into whether activist investors are working together to overthrow the board of the $200m loss-making Australian and New Zealand-listed media company. If that is found to be the case, it would require a buyout proposal, because collectively they own more than 19.9% of the stock. An investor cannot go beyond this point without making a bid unless they’re increasing their interest through creep provisions. Until the New Zealand Takeovers Panel makes its ruling, shareholders are banned from trading their stock, but that is set to wind up by the end of the week. Some market observers say private equity tycoon James Grenon could increase his holding in the company from about 10% to about 19% to ensure he gains boardroom control at the group’s annual general meeting. Based on where shares are trading, and factoring in a 30% premium, he could pick up a further stake of 9% for about $24 million. Grenon has proposed replacing chairman Barbara Chapman with himself and introducing other directors: Caniwi Capital’s Des Gittings, lawyer and commentator Philip Crump and former Trademe and Adairs director Simon West are his chosen candidates. One of the other major shareholders who supports the proposal said he believed Grenon would not need to buy more shares, as he already had enough support for the majority of shareholders to vote through his proposals. U.S. hedge fund Osmium Partners, Australia’s Spheria Asset Management and Caniwi Capital are all supporting boardroom change of some sort. Since Grenon’s first proposition, he has offered some options for compromise: NZME chief executive Michael Boggs could remain at the company and be appointed to the board or other directors could remain. NZME owns the country’s largest radio network, including the leading talkback station Newstalk ZB, as well as the online real estate company One Roof, which may be subject to a demerger following a Jarden-run strategic review. It also owns publications such as the country’s largest newspaper, the New Zealand Herald. NZME has faced investor activism after posting a $NZ16m loss last year in a weak advertising market. Its publishing arm has been singled out as a particularly poor performer: digital subscriptions increased but print subscriptions went backwards, leading to flat reader revenue, falling advertising dollars and lower earnings. Publishing took a $NZ24m impairment charge, and critics blamed the result on the poor quality of editorial coverage, which some believe lacks balance and wide audience appeal and is too focused on click-bait. NZME would not specifically comment on a report by the newspaper’s former editor, Tim Murphy that said almost all of the New Zealand Herald’s digital home page was now robot-selected, with artificial intelligence being used to decide which stories get placed where, and for how long. But NZME responded saying: “NZME has invested in automation technology...(but)...there is always human oversight across all content and sections of the homepage are always curated by editors." Eyebrows were raised last month when the company announced that it would “set a new tone and build positive social momentum for New Zealanders." This week, the company has significantly ramped up its own attack on Grenon and his proposal backers, with a 23-page announcement, including a 15-page slide pack on why his proposals would fail, and why NZME was outperforming the industry. On the back of the latest developments NZME directors have pushed back its annual general meeting from April 29 to June 3. The company legally must conduct the AGM before June 30. It also flagged concerns about Grenon’s proposals, including the lack of alternative plan, risks he would gain editorial control and poor governance. Grenon earlier said his plan was to improve cost control and lift editorial standards at the New Zealand Herald. He said that he would establish an editorial board and that he would be responsible for raising standards. One of the areas of particular criticism is that the company has sacked proficient journalists to cut costs while its own corporate costs increased. The total pay packet of Boggs averages $NZ2m annually. Last year, his base salary and super contributions were $NZ899,045 ($815,000). This compares with the Australian-listed broadcaster Southern Cross Media (SXL), which in May last year had a higher market value than NZME at $231m and paid chief executive John Kelly a base salary of $786,392. Nine, a $2.5bn diverse media group, this year appointed Matt Stanton as its chief executive with $1.6m of base pay. Jeff Howard, chief executive at Seven West Media which owns the West Australian newspaper and one of the country’s largest television broadcasters, was paid $1.25m. Since the shareholder activism, NZME flagged plans to find its own new directors. It said it acknowledged the importance of quality journalism and was focused on initiatives such as quality control, which included ranking every article and journalist on performance metrics like growing subscriptions and audience engagement. But shareholder Troy Bowker, who runs Caniwi Capital and has about 3.5% of the register, said it was “too little too late." He earlier said the board was neglecting shareholders and that it was not true that investors wanted to narrow NZME’s audience appeal.

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